CEBU INTERNATIONAL FINANCE CORPORATION V. COURT OF APPEALS, G.R.

No. 123031 October 12, 1999

FACTS: Jacinto Dy executed a Special Power of Attorney in favor of private respondent

Ang Tay, authorizing the latter to sell the car go vessel owned by Dy and christened
LCT “Asiatic.” Through a Deed of Absolute Sale, Ang Tay sold the subject vessel to
Robert Ong (Ong). Ong paid the purchase price by issuing three (3) checks However,
since the payment was not made in cash, it was specifically stipulated in the deed of
sale that the “LCT Asiatic shall not be registered or transferred to Robert Ong until
complete payment.” Thereafter, Ong obtained possession of the subject vessel so he
could begin deriving economic benefits therefrom. He, likewise, obtained copies of the
unnotarized deed of sale allegedly to be shown to the banks to enable him to acquire a
loan to replenish his (Ong’s) capital. The aforequoted condition, however, which was
handwritten on the original deed of sale does not a ppear on Ong’s copies.

Contrary to the aforementioned agreements and without the knowledge of Ang Tay,
Ong had his copies of the deed of sale (on which the aforementioned prohibition
doesnot appear) notarized Ong presented the notarized deed to the Philippine Coast
Guard which subsequently issued him a Certificate of Ownership and a Certificate of
Philippine Register over the subject vessel. Ong also succeeded in having the name of
the vessel changed to LCT “Orient Hope.” Using the acquired vessel, Ong acquired a
loan from Cebu International Finance Corporation to be paid in installments as
evidenced by a promissory note of even date. As security for the loan, Ong executed a
chattel mortgage over the subject vessel, which mortgage was registered with the
Philippine Coast Guard and annotated on the Certificate of Ownership.

Ong defaulted in the payment of the monthly installments. Consequently, Cebu

International Finance Corporation sent him a letter demanding delivery of the
mortgaged vessel for foreclosure or in the alternative to pay the balance pursuant to
paragraph 11 of the deed of chattel mortgage. Meanwhile, the two checks paid by Ong
to Ang Tay for the Purchase of the subject vessel bounced. Ang Tay’s search for the
elusive Ong and all attempts to c onfer with him proved to be futile. A subsequent
investigation and inquiry with the Office of the Coast Guard revealed that the subject
vessel was already in the name of Ong, in violation of the express undertaking
contained in the original deed of sale. As a result thereof, Ang Tay and Jacinto Dy filed
a civil case for rescission and replevin with damages against Ong and his wife

ISSUE: Whether or not Cebu International Finance Corporation can validly foreclose the
chattel mortgage

RULING: The prevailing jurisprudence is that a mortgagee has a right to rely in good
faith on the certificate of title of the mortgagor to the property given as security and in
the absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of or does
not have a valid title to the mortgaged property, the mortgagee or transferee in good
faith is nonetheless entitled to protection. Although this rule generally pertains to real
property, particularly registered land, it may also be applied by analogy to personal
property, in this case specifically, since ship owners are, likewise, required by law to
register their vessels with the Philippine Coast Guard. The chattel mortgage constituted
on a vessel by the buyer who was able to register the vessel in his name despite the
agreement with the seller that the vessel would not be so registered until after full
payment of the price which do not appear in the buyer’s copy of the deed of sale is
VALID, for the mortgagee has the right to rely in good faith on the certificate of
registration